Also available as TILEC DP 2009-035 | http://ssrn.com/abstract=1470695
09
Marcel Canoy | Wolf Sauter
2009
Hospital Mergers and the Public
Interest: Recent Developments
in the Netherlands
Hospital mergers and the public interest: recent developments in The Netherlands
Marcel Canoy and Wolf Sauter
Abstract
This paper examines the recent experience concerning hospital mergers in The Netherlands. A
topic that is likely to be of broader relevance as healtcare reform in The Netherlands is
relatively advanced. In particular we look at issues concerning market definition, vertical
integration and the efficiency defense. The findings are that there appears to be a case for
stricter, possibly sector specific, forms of merger control in a liberalisation context. Also there
is a need for flanking measures – such as facilitating market entry. Finally public interest
standards in healthcare such as quality, affordability and accessibility should be developed
further to enable them to play a more meaningful role in merger control.
Publication date: September, 2009
JEL Codes: I; I 18; K; K 21; K 23; K 32.
Key words: hospital mergers, healthcare liberalisation and: merger control, hospital market
definition, hospitals and: vertical integration, efficiency defense, healthcare: and The
Netherlands.
Both authors are affiliated with the centre for law and economics of Tilburg University (TILEC). Marcel
Canoy is also chief economist at ECORYS and Wolf Sauter competition expert at the Dutch Healthcare
Authority (NZa). The views expressed in this article are personal and do not bind the institutions
mentioned here.
1
Introduction
Healthcare mergers generally, and hospital mergers in particular, tend to give rise to political
debate. They are politically salient because consumers see them as a threat to the “human
scale” of care (trusted providers at the bedside). Economists meanwhile are weary of the
consequences of market power. In the US, following a series of misadventures by the antitrust
authorities, hospital mergers are also the subject of academic debate as economists strain to
develop new methods especially for geographic market definition.1 In this contribution we will
discuss the Dutch experience. We believe this to be as illustrative as that of the US because
the Netherlands has one of the most liberal healthcare systems in Europe where both hospitals
and health insurers are private and exposed to competition. Hence the Dutch experience may
presage what is to come elsewhere in the EU.
We address three issues that are significant for hospital mergers:
– geographical market definition
– the efficiency defence
– vertical integration between health insurers and hospitals
In addition we will sketch the Dutch policy context, especially the role played by the general
Competition Authority (NMa) and two sector-specific authorities: the Inspectorate for
healthcare (IGZ), which is responsible for (minimum) quality, and the Dutch Healthcare
Authority (NZa) the sector-specific regulator for healthcare charged with promoting the
consumer interest (in particular accessibility, affordability and quality). The latter two bodies
play an advisory role in relation to the Competition Authority in merger cases.
We will identify possible solutions both to the technical problems relating to market definition
efficiency, quality and vertical integration as well as to the institutional problems involved.
Background
Health Insurance
The Dutch healthcare system was reformed in 2006.2 The basis of the new system is formed
by competition between private health insurers who operate within a framework of public
service obligations, notably standard coverage and universal service requirements and
prohibitions on premium differentiation and risk selection. Healthcare insurance is both
universal and mandatory. Around 50% of health insurance funding is based on insurance
premiums paid directly by consumers and 50% on income related pay deductions distributed
pro rata among the insurers. The insurers are compensated for above average ex-ante risk
profiles of their insured population by means of a system of risk equalisation.3 There are
currently around twenty such insurers, of which the largest four have a significant market
share (jointly almost 90%).
Hospital care
Like health insurance, hospital care is provided by private undertakings in The Netherlands –
although there are rules restricting the distribution of dividends. Today there are around 100
independent hospitals in The Netherlands. Traditionally hospital financing was budget-based
and subject to strict price controls. At present efforts are made to introduce performance
based pricing, and at the same time an increasing percentage of treatments is being
liberalised. The liberalised area is now at around 35% (the objective of the current government
is 50%). In the liberalised area an increasing number of smaller specialised treatment centres
has emerged, initially typically focussing on high volume and low risk treatments such as
cataract and knee surgery.
Regulatory supervision
Several regulators are active in healthcare in The Netherlands. The first is the Competition
Authority, which is formally responsible for deciding merger cases. The sector specific Health
Authority is competent e.g. with respect to dominance based significant market power (SMP)
1
Improving Healthcare: A Dose of Competition. Report by the Federal Trade Commission and the
Department of Justice, July 2004. http://www.usdoj.gov/atr/public/health_care/204694.htm
2
See: Dutch Ministry of Health, The new care system in The Netherlands: durability, solidarity, choice,
quality, efficiency, May 2006 http://www.minvws.nl/en/folders/z/2006/the-new-health-insurance-systemin-three-languages.asp; Dutch Health Authority, Contribution to EU consultation on cross-border health
services,
October
2006
http://ec.europa.eu/health/ph_overview/co_operation/healthcare/docs/health_services_co201_nl.pdf
3
A similar system in Ireland was examined in detail in a state aid context in Case T-289/03 British United
Provident Association Ltd (BUPA) et al. v Commission (BUPA) [2008] ECR II-81
2
cases, but in merger cases only provides advice to the Competition Authority, focusing on the
effects on consumers in terms of affordability, quality and accessibility. The Health
Inspectorate provides the Health Authority with advice on quality-related issues in mergers,
notably with regard to minimum quality. The Health Authority incorporates this advice in the
opinion that it renders to the Competition Authority.
Context
Liberalisation of Dutch hospital markets was a key aspect of the 2006 Healthcare reform. The
reform was designed to counter widespread public dissatisfaction with the combination of
lengthening waiting lists and spiralling costs that characterised the supply based and densely
regulated preceding system. For competition among hospitals to succeed it is important that
new forms of financing and ownership are enabled, as well as new forms of cooperation,
mergers and takeovers.
However inappropriate outcomes from the present system of merger control appear to
jeopardise this process. Until 2004 the Competition Authority held the view that the existing
scope for competition was marginal and therefore no scrutiny was required – refusing, in effect
to anticipate the regime change. Predictably many hospitals took advantage of this regulatory
holiday. Since 2004 failed mergers and/or merges that were approved when they should have
been blocked have threatened public and political support for competition in the hospital
sector. Dominant positions that result after a merger can frustrate competition on a lasting
basis. Yet so far each and every healthcare merger that was examined by the Competition
Authority (i.e. over 100, of which nine hospital mergers) has been cleared.4 This article sets
out some of the concerns raised by this worrying trend.
Liberalisation
Healthcare liberalisation is based on the expectation that competition will contribute to the
public values of affordability, quality and accessibility. This is the reason why the Health
Authority was provided with regulatory tools that aim to increase or promote competition – as
opposed to merely protecting existing competition, which is the task of the Competition
Authority. Examples are powers relating to transparency and accounting methods, intervening
in the conditions of agreements and in the manner in which such agreements come about as
well as imposing remedies on parties that enjoy significant market power (SMP), ranging from
imposing transparency to imposing cost-based individual price regulation. However the
problem is that in spite of these regulatory powers mergers can frustrate the liberalisation
process.
This problem is first of all caused by the difference between promoting competition and merger
control. The Competition Authority can only block a merger if it “appreciably impedes
competition” in particular as the result of the creation or strengthening of a dominant position,
which is a very different standard from “promoting competition”.5 The result is that mergers
can be allowed which reduce (the scope for) competition while the opposite is desirable.
One possible solution could be imposing (behavioural) SMP remedies to address specific
problems caused by the merged entity. However because SMP is based on dominance this will
be difficult to do in the wake of a merger case where the Competition Authority has just
concluded that dominance was not created or strengthened. Moreover prevention is the best
cure. Liberalisation was not undertaken to reintroduce detailed regulation at the level of
individual firms. Instead, structural problems require structural solutions – such as selling off
parts of a dominant undertaking – which are not part of the current set of SMP remedies.
A second reason for the “red carpet” for hospital mergers lies in the difficulty for the
Competition Authority to decide cases in transition markets. This is because the burden of
proof demanded in court is difficult to meet in such cases, while the balance between the
parties and the Competition Authority is also different in healthcare mergers than it generally
is in the context of merger control: there is much less time pressure on hospitals as they are
generally not subject to the demands of shareholders and external financing, which generally
introduce strict time constraints. Moreover accountability and external and internal governance
4
Apparently in two of nine hospital cases since 2004 the parties withdrew, possibly due to the objections
raised by the Competition Authority. One of these cases – concerning the Zeeuwse Ziekenhuizen, as
discussed here – however led to a new and successful application.
5
See Articles 37(2) and 41(2) of the (Dutch) Competition Act (as revised in 2007) available in English at
http://www.nmanet.nl/Images/Mededingingswet%20-%20geredigeerd_tcm16-125901.pdf
3
in healthcare tend to be weak, which limits the checks and balances to which the merging
parties are subject.
Undoing mergers once they have been cleared and implemented is all but impossible: “you
can’t unscramble an omelette”. Interested third parties do not dispose of the information
necessary to successfully contest a merger decision and judges are not keen to experiment
with such cases. Consequently there really is no judicial review of decisions to clear mergers
(although perhaps sometimes of conditions imposed), or even of decisions that no clearance is
necessary.
This general problem is exacerbated by the policy context. Blocking a merger is far more risky
(in terms of successful appeals by the parties) for the Competition Authority: hence there is a
bonus on approving them. After falling into each other’s arms weak merged entities often keel
over altogether and end up in dire financial straits. Because the current political climate makes
it very difficult to allow hospitals to fail and close down (who would dare do so while banks are
bailed out on a fantastic scale), the result is a call for state aid – with further negative
consequences for performance, competitive conditions and market structure.
Market definition
The first important step in merger control is evidently defining the relevant geographical and
product market. In a relevant market thus defined the creation or strengthening of dominance
is tested. However there are some general methodological problems with defining the relevant
market for hospital mergers.6 Moreover, the Competition Authority does not always use all
available tools – for example the German Bundeskartellamt appears to apply a more detailed
analysis. 7 In some cases the Competition Authority did not even define the market at all even
though a market definition was called for.
As a result of this methodological muddle and the limited approach of the Competition
Authority doubts remain concerning the relevant market. Because the Competition Authority
bears the burden of proof, the result is that the merging parties are often given the benefit of
the doubt. This too promotes merger approval. According to our own analysis at least three
out of the past nine hospital merger cases in The Netherlands were cleared for this reason. If
continued this trend can lead to the clearance of further mergers that are not in the general
interest.
A case that illustrates this point is the merger of the Gooische hospitals.8 Two hospitals that
were close substitutes (in terms of services provided, proximity and number of beds) in the
centrally located region “Het Gooi” wanted to merge. What happened next was predictable.
Both the Competition Authority and the involved parties hired consultants to delineate the
relevant market. Unsurprisingly the various consultants used a variety of methods (the
Elzinga-Hogarty test based on actual patient flows, and alternatives based on willingness to
travel). Equally unsurprisingly, these methods yielded different results. A method based on
stated preference data yielded a large relevant market, while revealed preferences pointed at a
small relevant market. In such cases the NMa is afraid that judges will give the merging
parties the benefit of the doubt, leading to a bias towards large relevant markets. Such a bias
is quasi automatic since there can always be doubt about the relevant market, in particular in
a densely populated country like the Netherlands.
Nevertheless the Competition Authority and the Healthcare Authority have jointly invested in
developing new quantitative methods of market definition (variations on time-elasticity,
competitor share and option demand).9 In future it might be expected that the discussion on
methods will yield less controversy and hopefully more robust results.
Limited returns to scale
6
M. Varkevisser, C.S. Capps, en F.T. Schut, “Defining hospital markets for antitrust enforcement: new
approaches and their applicability to The Netherlands”, (2008) Health Economics Policy and Law 7-29.
7
T. Lübbig and M. Klasse, Kartellrecht im Pharma- und Gesundheitssektor (Baden-Baden, 2007).
8
Case no 3897, Hospital Hilversum-Hospital Gooi Noord, Decision of 8 June 2005. Available in English at
http://www.nmanet.nl/engels/home/Index.asp.
9
For a description see above, note 6, and M. Varkevisser, S.A. van der Geest and F.T. Schut (2009,
forthcoming), “Assessing hospital competition when prices don't matter to patients: the use of timeelasticities”, International Journal of Health Care Finance and Economics.
4
Dutch hospitals are relatively large compared to hospitals in other developed countries. The
literature suggests that in The Netherlands the efficient scale for hospitals is generally
exceeded. Above two hundred to three hundred beds there are no more positive returns to
scale and instead negative returns to scale may dominate. The average scale of Dutch
hospitals is far above this level (and well above the average EU level) at almost five hundred
beds.10
This observation is sometimes countered with the argument that the highly developed system
of primary care in The Netherlands has generated the emergence of more specialised hospitals
that may still be associated with increased returns to scale. The absence of well-organised
primary care could lead to a greater degree of decentralisation, such that care that would
classify as primary care in The Netherlands is performed by hospitals elsewhere. This thesis
has not yet been proven or fully researched. However experience so far suggests increasing
scale – including as the result of mergers – does not lead to better performance. Moreover, in
the light of liberalisation and specialisation, it is likely that hospitals in the future will be more
limited in their focus.
Finally, the effects of scale are not unambiguous in relation to the three public interests that
define the consumer interest for the Health Authority, i.e. quality, affordability and
accessibility. Especially efforts to promote quality appear to favour increased scale. The
literature shows that at least in the case of complex surgical treatment increasing the number
of times a treatment is performed by a consultant or surgical team can improve quality.11 In
this case concentration is in fact a means of promoting more specialisation, or subspecialisation in relation to the efficient scale for a quality perspective per consultant (which is
likely to differ from that for the hospital as a whole). Concentration can also play a role in
relation to promoting continuity (e.g. 24/7 availability of services), which is a dimension of
accessibility, even while another dimension of accessibility – such as travelling distance – may
decline by the same measure.
Because the effects of increasing scale in relation to the three public interests are not
unequivocal and are likely to differ per specialisation it is a legitimate question whether a
hospital merger is the appropriate means to achieve the relevant returns to scale. Instead
other forms of cooperation that involve fewer market distortions may be more targeted and
therefore preferable.12
The public interest dimension
The absence of a clear legal basis
Healthcare (like the media and the financial sector) appears to be characterised by public
interests that are not easily caught by the competition policy framework. These public
interests, accessibility, affordability and quality, are anchored in legislation in relation to the
Health Authority but do not bind the Competition Authority. This gives rise to a risk that they
may be invoked selectively, e.g. in response to political pressure, but not as a part of an
objective framework of analysis. This risk is clearly illustrated by the 2009 Zeeuwse Hospitals
Case discussed below.
Measurement and SGEI
The consumer surplus that is generally agreed must be promoted by competition policy means
that consumers obtain the best possible price/quality ratio. In principle it is possible to
interpret affordability simply as price, and accessibility and quality of care as two different
dimensions of quality. This makes it possible to account for the three different dimensions of
healthcare in a competition policy context. However this approach involves several
complications.
Firstly, it is not yet possible to measure and compare the different aspects of quality
accurately. How does one compare a decrease in accessibility with an improvement in quality
of care? Even if this could be expressed in quality adjusted life years (QALYs)13 political
10
The Dutch average is 478 beds, figures for Sweden are 256 beds, for Germany 243 beds and for France
145 beds. Cf. OECD Health data 2008.
11
Cf. E.A. Halm, C. Lee en M.R. Chassin, “Is volume related to outcome in health care? A systematic
review and methodological critique of the literature”, (2002) Annals of Internal Medicine 511-552.
12
See also P. Bogetoft and K. Katona, Efficiency gains from mergers in the healthcare sector, NZa
Research Paper No. 10 (2008).
13
Cf. D. Dranove, What’s your life worth? Health care rationing… Who lives? Who dies? And Who decides?
(FT Prentice Hall, New Saddle River NJ 2003).
5
preferences play a role in weighing such variables: this is not a job for a competition authority.
And as long as the different variables cannot be measured and compared, outcomes are
uncertain and to a certain extent arbitrary. Hence the challenge is to make the three public
interest dimensions comparable and measurable.
It is also necessary to make transparent reference frameworks of the authorities involved so it
is clear which standards are applied in a merger procedure.. As far as the Competition
Authority is concerned the process is currently well-defined in the Competition Act, but the
involvement of the Healthcare Authority and the Inspectorate is based on more non-binding
inter-institutional agreements and protocols. Once it is clear who is in charge of which aspects
of merger control and what standards are being applied by whom, trade-offs between different
objectives may become more transparent.
Secondly, fuzzy notions are often introduced, like “systemic hospitals”, which played a role
recently in a state aid context in the 2009 IJsselmeer Hospitals Case.14 What is missing is a
clear definition of public services: what is the minimum set of hospital services that must be
universally available, who is responsible for this and how are they to be paid for? On a smaller
scale the same issue arises with regard to emergency care.
In order to create a system that is sound from the perspective of EU law – which is not an
unimportant consideration in the Dutch context where hospitals are private undertakings and
hence state aid issues arise – it is recommended that services of general economic interest
(SGEI) are defined.15 Defining the public service clearly (with only proportional restrictions of
competition) requires a process of rationalisation that will no longer allow “public interests” to
be invoked at will in order to justify political interference. An interesting consequence could be
that introducing SGEI might lead to fewer mergers (instead of more, as anticipated by the
Dutch Competition Act): guaranteeing continuity of care will no longer be synonymous with
keeping afloat a failing hospital but can then be approached on a functional basis. Instead the
least restrictive means will have to be chosen, such as financing continuity of emergency care,
possibly supplied outside the context of the failing hospital as a whole. Finally exceptions for
SGEIs are already provided as a matter of national law in the Competition Act.
Mergers in practice
Vertical mergers
The appearance of vertical mergers between entities at different levels of the supply chain is
also part of a lively public debate in the Netherlands. A first example outside the hospital
sector, the Evean Case, involving a merger between a housing corporation and a provider of
long term intramural care, gave rise to the first dissenting opinion by the Healthcare Authority
(and after Parliamentary protests following its clearance by the Competition Authority was
ultimately blocked by the Minister for Housing under specific legislation).16 Another example is
provided by the recently cleared takeover by the Hospital of the University of Amsterdam of all
ambulance services in that city. Against the objections raised by the Healthcare Authority the
Competition Authority held that there would be no appreciable effects on competition (a
question of market definition), and that abuse of market power was controlled by (current and
future) protocols that govern ambulance services.17
Meanwhile in the ongoing Vlietland Case the first vertical hospital merger involving not only a
health insurance company but also a network of general practitioners has emerged.18 On the
one hand vertical mergers are less problematic than mergers between direct competitors
because it is often unclear whether there are competition concerns and because generally
there are efficiency gains (e.g. due to the elimination of double marginalisation).19
14
Logically systemic hospitals do not exist in the same way that systemic banks do. In the former case
there are no cross-holdings and supply of liquidity, nor is the hospital system fundamentally based on trust
to a comparable degree that banks are. Hence the failure of a competing hospital first of all means more
business, not a threat.
15
Cf. W. Sauter, “Services of general economic interest and universal service in EU law”, (2008) European
Law Review 167.
16
Case 6141, Evean – Philadelphia – Woonzorg Nederland, Decision of 1 April 2008. Available only in
Dutch at http://www.nmanet.nl/nederlands/home/index.asp.
17
Case 6704 AMC-VZA, Decision of 24 July 2009 with English ,language press release. An English language
version of the Decision will be made available at http://www.nmanet.nl/engels/home/Index.asp.
18
Case 6669, Coöperatie Vlietland – Vlietland Zieken huis, notified on May 6th 2009.
19
M.J. Bijlsma, A.G. Meijer en V. Shestalova, Vertical relationships between health insurers and healthcare
providers, CPB Document 167, augustus 2008.
6
Coordination problems can also be reduced. On the other hand a strong position in the hospital
market can lead to a risk of exclusion of other health insurers, and/or other hospitals. This risk
is all the greater as in this particular case not only the largest health insurer in the region is
involved (an issue likely to arise elsewhere too given high regional concentration ratios of
health insurers generally) but also most of the general practitioners in the region (who are
responsible for crucial referral decisions). Finally apart from access- and discrimination issues
questions arise with respect to the confidentiality of patient and treatment data.
It is at present not clear whether the Vlietland hospital will manage to merge and/or to obtain
aid or whether it will collapse financially instead. It general is likely that vertical mergers
between hospitals and insurers will arise more frequently as more and more hospitals run into
financial difficulties. Instead of being forced to bankroll aid awarded by the Healthcare
Authority (which is the current practice now under review, although subsequently insurers are
compensated from the health insurance fund) insurers may prefer to take an equity stake in
key hospitals, which provides them with at least some control over the way the funding
provided is spent.
Meanwhile political concerns that insurance companies would use vertical relations to frustrate
competition on the insurance market led the Dutch Minister to install an independent expert
Committee. The Committee’s task was to analyze the possibilities for abusive behaviour by
insurers in vertical relationships. It concluded that there was a priori no reason to believe
insurers would abuse their vertical relationships, and that in case they did, sufficient
instruments were available (as a matter of sector specific and general competition law) to
counter such behaviour. Having discussed market definition and verticals in the context of
hospital mergers, we will now look at the efficiency defence.
Mergers and efficiency defence: the Zeeland Hospitals case
This case between the only two general hospitals in central Zeeland, located on a peninsula
between Antwerp and Rotterdam that is isolated from major population centres and hospital
facilities (by Dutch standards), turned into an authentic merger saga. It took over three years
between the first notification in September 2005 (which was withdrawn after the Competition
Authority decided a formal second phase clearance would be required) and the final second
phase decision (following a second notification) which cleared the merger subject to a number
of conditions in March 2009.20 The case was subject to extensive lobbying efforts, while the
Healthcare Authority submitted four opinions and the Inspectorate submitted two. Eventually it
was the argument of improved quality that turned out to be decisive in the context of an
efficiency defence.
There was a nearly complete overlap between the offerings of the two merging parties with
345 and 365 beds respectively, except for a top-clinical treatment facility for AIDS/HIV in
cooperation with the medical centre of the University of Rotterdam operated by one of them.
As such this was a horizontal merger between the two nearest rivals: a travelling time analysis
showed that the merging hospitals were first and second choice for over 75% of consumers.
(The nearest general hospital was at 45 minutes travelling distance and the next nearest
hospitals at between an hour and 90 minutes.) The product market in this case was defined as
the markets for clinical general hospital care respectively for non-clinical general hospital care.
The geographical market, based on an analysis of travelling time and consumer flows was
defined as central Zeeland. In the case as it was finally decided the market definition was not
contested.
The merger would create a near-monopolist with 84% of the market for clinical general
hospital care and 88% of the market for non-clinical general hospital care. There were no
alternative providers within the relevant market nor was there any threat of market entry.
Moreover health insurers could not exert countervailing market power given their obligation to
contract adequate levels of care and the lack of alternatives in the region. Hence it was clear
that the merger would significantly impede effective competition, in particular as a result of the
creation or strengthening of a dominant position.
20
Case 6524, Walcheren Hospital – Oosterschelde Hospitals, Decision of 25 March 2009. Available in
English at http://www.nmanet.nl/engels/home/Index.asp.
7
The hospitals raised an efficiency defence, claiming that individually their departments were to
small to ensure 24/7 continuity of care (especially in paediatrics and gynaecology); that they
were attracting too few cases to allow for sub-specialisation, or create a first aid treatment
centre and an intensive care unit at higher levels that (according to the merging parties) were
required given their regional function. As a result, they claimed, they were underperforming
which could lead to a downward spiral where it would become impossible to attract consultants
and consultants already present would desert the hospital, with a danger that intensive care as
well as mother and child care would be closed down and disappear from the region. A merger
on the other hand would lead to the needed quality improvements (as well as the cost
efficiencies and enhanced leadership more generally claimed in mergers).
The relevance of this plea was underlined as it was supported by the Inspectorate. In fact the
Inspectorate claimed that the downward spiral could lead to the disappearance of general
hospital care from central Zeeland altogether and that only a complete merger between the
two parties could save the day.
The Healthcare Authority on the other hand was much more sceptical and claimed that this
monopoly merger would potentially have serious consequences for affordability, accessibility
and quality (in the sense of price to quality ratio). Because it was required to follow the
Inspectorate on quality issues, the Authority insisted that if the merger was to be cleared to
safeguard minimum quality it should at least be subject to a complex of both structural and
behavioural remedies.
The Competition Authority held, in the first place, that the conditions for a successful efficiency
defence had not been met.21 It felt that it was not plausible that the benefits claimed would
accrue to consumers and that they could not be verified. Crucially, the Competition Authority
did however accept – on the authority of the Inspectorate – that the improvements were
merger specific. It next solved the case as follows: the remedies would ensure that the
conditions for the efficiency defence could be met after all, allowing clearance of the monopoly
merger. Thus it:
imposed a price cap (based on the national average) for the competitive sector,
required commitments with relation to the quality improvements that had been claimed
(e.g. the next level intensive care and first aid units),
and demanded opening up of the collective agreement between the hospitals and their
consultants enabling the latter to set up shop in competition with the merged entity.
All three of these remedies are of course behavioural. Structural remedies were not considered
because they were considered too complicated to put in place. This contradicts the general rule
among Competition Authorities in the EU that were possible structural remedies are preferred
and potentially sets a precedent, because if structural remedies are not indicated as the
remedy of first resort in a monopoly merger, when would they be?22 Nevertheless, the use by
the Competition Authority of behavioural remedies to enable a successful efficiency defence
work shows remarkable creativity.
This case also raises questions relating to the cooperation between the various authorities and
especially to the role of the Inspectorate whose quality arguments seem to have dominated
this case. Often however the quality standards used were not met by up to 50% of existing
Dutch hospitals and usually they only repeated input measures favoured by professional
organisations (e.g. a clinic should have no fewer than five full-time gynaecologists). Of broader
relevance is the issue how to weigh claims of increased quality in an efficiency context.
Mergers and aid
Finally there is a somewhat perverse link between mergers and state aid. Several healthcare
conglomerates created by unchecked mergers are teetering on the edge of bankruptcy. One of
the hospitals involved in the Zeeuwse Hospitals Case is already being tagged as the weakest in
financial terms in The Netherlands. The Vlietland hospital with vertical merger ambitions is on
21
Commission Guidelines on the assessment of horizontal mergers under the Council Regulation on the
control of concentrations between undertakings, OJ 2004 C31/5 Paras 76-88.
22
Commission Notice on remedies acceptable under the Council Regulation (EC) No 139/2004 and under
Commission Regulation (EC) No 802/2004, OJ 2008, C267/1, Para 17.
8
the brink of collapse. The IJsselmeer Hospitals, mentioned above, and likewise created by
merger, required many millions in state aid to remain afloat. At present the framework for
awarding aid in the healthcare sector is sketchy. In particular it is unclear what public interest
in being served with aid, because in The Netherlands there are no explicit continuity
requirements.23 Because of the absence of such standards it is understandable that as an
alternative it has become politically unacceptable for hospitals to be shut down or even
particular hospital locations.
The IJsselmeer Hospitals Case shows that state aid might harm competing neighbouring
hospitals that had been prepared to step up their services to meet the increase in demand.
This is all the more harmful because a takeover in the event of a (threat of) bankruptcy is one
of the few practical ways of entering the hospital market in The Netherlands. This leads to the
following potential perverse effect: badly designed mergers and failing executives trigger state
aid that is granted in the name of public interests without any coherent attempt at actually
guaranteeing the latter based on a clear standard.
A the same time there is a self-fulfilling prophecy at work here: it is clear that if all mergers
continue to be cleared eventually hospitals will be created at a scale that really would lead to
serious problems of continuity and accessibility of care if they were to keel over or disappear.
In this scenario there will not be any competitors left, or they will not be in a position to meet
the additional demand for care. In this context “too big to fail means too big to exist”.24 This
risk too should be examined in the context of merger control.
This point has been acknowledged by the Ministry of Health Care. Some recent steps have
been undertaken to try to define continuity of health care and to determine conditions for state
aid in this context. Also there are public statements that the Vlietland Hospital mentioned
above will not be saved with public money.
Conclusions
The Dutch experience with hospital liberalisation first of all shows that opening up markets
leads to an increase in merger activity. This is so because in most cases markets prior to
liberalisation were not efficient. The opening up then creates opportunities to enhance
efficiency. However the increased merger activity is not necessarily exclusively of even
primarily efficiency enhancing. There can also be increased incentives for less benign mergers,
because market power is likely to be better rewarded than before (either at the level of the
hospital or at the level of its executives).
Therefore it is crucial to employ appropriate merger control.
The first lesson of the Netherlands is that such merger control should start prior to the actual
opening up since firms anticipate the new regime. Indeed this is exactly what happened.
A second and more fundamental lesson is that – for a variety of reasons - regular merger
control is unlikely to be sufficient to stop mergers that are not in the public interest. A first
reason may be of a temporary nature. As long as it is not established what the appropriate
methodology is for defining the relevant market there will be doubt whether the relevant
market is larger or smaller. This leads to an automatic bias towards larger markets. A more
fundamental reason for the bias in favour of clearing mergers is caused by the difference
between promoting competition and merger control. The aim to promote competition can be at
odds with the far more stringent standard of “appreciably impeding competition” in merger
control.
A third lesson is that it is important to make the health goals accessibility, affordability and
quality sufficiently operational for competition authorities to handle.
A final lesson is that merger control in healthcare should be seen in a broader context.
Advantages and disadvantages stemming from mergers can be greatly influenced by public
policy, for instance by easing entry possibilities, by counteracting the sometimes excessive
power of medical specialists or by allowing failing hospitals to go bankrupt.
23
The exception is the requirement of a maximum of 45 minutes driving distance from the nearest
emergency care unit, without a clear addressee.
24
Paraphrasing Vermont Senator Bernie Sanders, in the hearings on the US credit crisis.
http://sanders.senate.gov/news/record.cfm?id=303313.
9
10
NZa
The Dutch Healthcare Authority (NZa) is
The Research Paper Series presents scientific
the regulator of health care markets in the
research on health care markets and addresses
Netherlands. The NZa promotes, monitors and
an international forum. The goal is to enhance
safeguards the working of health care markets.
the knowledge and expertise on the regulation
The protection of consumer interests is an
of health care markets.
important mission for the NZa. The NZa aims
at short term and long term efficiency, market
This paper reflects the personal views of
transparency, freedom of choice for consumers,
authors, which are not necessarily those of
access and the quality of care. Ultimately, the
their employers. This paper is not in any way
NZa aims to secure the best value for money
binding the board of the NZa.
for consumers.
TILEC
TILEC was born out of the recognition that
even if they do not necessarily fall within
the traditional ways of organizing academic
‘Law & Economics’ in the sense of the specific
research - along faculty lines - are no longer
school of thinking which has arisen out of the
adequate today. Researchers in law strive to
work of US academics and is now well-
draw upon economics and yearn to work with
established everywhere.
economists, and vice versa. Furthermore, the
outside world - market actors, authorities,
The mission of TILEC is:
practitioners - has come to expect researchers
-
for participating researchers from the
from law and from economics to work
Faculties of Law and Economics, to provide
together, putting a premium on research that
support and to stimulate joint research
rests on both disciplines. Given its excellent
activities, thereby enhancing the
Faculties of Economics and Law, Tilburg
intellectual climate for research at
University is in an ideal position to meet the
Tilburg University in the area;
expectations of researchers and the outside
-
towards the outside, TILEC aims to belong
world alike. TILEC is meant to be the vehicle
to the top in Europe and to be recognized
for doing so. TILEC will be concerned broadly
as a leading centre in its areas of activity
speaking with the use of both law and
also in the US.
economics in research endeavours,